The GBPEUR rate is 0.11% higher in early trading on Wednesday after the latest UK inflation figures came in higher than expected. The reading was only 0.1% in the inflation rate and core number, but this is enough to show price pressure despite the lockdown.
GBP to EUR is trading at 1.1493 and will likely test the key 1.1500 resistance level today.
UK Inflation Ticks Higher
The UK saw prices tick higher with the inflation rate at 0.7% compared to analysts’ expectations of 0.6%. The core number also rose to 1.4% due to higher oil prices as Brent trades near $63.
Higher food prices and household goods were a factor in the key rate, according to the data from the Office for National Statistics (ONS).
Clothes prices were lower and this usually occurs in June and July as retailers switch to autumn ranges, before a surge into year-end. This was turned on its head due to the lockdown as sales increased in March and April, with a slowdown in November to January due to discounts.
The Bank of England has noted that UK households had £125bn of savings due to the lockdowns and policymakers will have a headache when the economy reopens and spending surges. With interest rates at record lows, the negative rate talk could be removed from the table if prices continue higher.
The pound to euro rate had drifted lower yesterday on EU GDP and stronger sentiment figures, but the inflation number could push the British currency higher.
UK Could Return to Full Business Operations in July
Britain’s Prime Minister Boris Johnson is considering the implementation of a staged exit from the current lockdown that would see the economy fully returning to work in July.
The Daily Mail cited government sources for the plan, ahead of the Prime Minister’s address to the nation on Monday. The report also said:
“Leisure businesses may not return to ‘broadly normal’ until July under a roadmap out of lockdown”.
It was also added that the “The ‘work from home if you can’ message will continue for the foreseeable future.”
The roadmap on Monday will likely disappoint despite the country being on a rapid course to herd immunity through the vaccine. Critics accused the PM of “moving the goalposts” after he talked of wanting to see “very low” virus cases. Johnson and other members have also been quoted as saying that they want this to be the last lockdown, so there is confusing surrounding his actual plans.
With the UK leading the EU in vaccines and a budget being delivered on March 4th, this would be an opportunity to open the economy and see strong growth into the end of 2021.
The GBPEUR rate sees resistance at 1.1500, which was the high in April 2020. If the pair moves above here then the 1.2000 level could be the target for the year.
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